Jamie Dimon Is My Hero
April 4, 2008
“Buying a house is not the same as buying a house on fire”
JPMorgan Chase CEO Jamie Dimon explaining his bargain basement deal to buy Bear Stearns
Other than finding a deal on a home you want to live in for the next five years or so, you would have to be an absolute fool to buy a house in today’s market anywhere close to list price.
There is no room for speculation in real estate today. If you are going to invest, which is vastly different from speculating, you have to be prudent, ultra-conservative and economically responsible in your purchasing practices.
Real Estate Speculation:
Buying a property with the expectation and hope that the property values appreciate over time so that the property can be sold for future profit.
Real Estate Investing:
The purchase and sale of a property for IMMEDIATE profit OR the long term holding of a property that cash flows from date of purchase. Houses are no longer piggy-banks or ATM’s. A knowledgeable and experienced real estate investor understands that you make your money when you buy and you are not buying a property to continually refinance and pull cash out over and over. Those days are over. Unless a property can be turned immediately in a salvage wholesale transaction, an appreciation based purchase is financial suicide.
So you can see from the above definitions, speculators are an endangered species in today’s market and an educated investor can make an absolute fortune given current market conditions.
The bottom line…CASH FLOW IS KING! No property should be purchased in any market, under any circumstances, by any investor unless it can be sold immediately for profit or if you choose to buy and hold..it must cash flow from day 1.
No exceptions allowed. Jamie Dimon didn’t strike an extraordinary deal, he invested with great market prejudice and vision. Accordingly, he got his terms or no deal.
If you are buying property in today’s market and you do not intend to live in it as your personal residence, then you should be buying your investment properties in much the same way.
So just how do you buy the Jamie Dimon way:(read about the Bear Stearns Bailout)
1. Completely ignore list price. It has absolutely no bearing on what you will pay. When we look at investment properties, the MLS asking price is wholly irrelevant. It’s a pipe dream conjured up by a real estate agent hoping to sell the house to a retail end buyer or an unknowing and inexperienced investor.
2. Comparables are like list prices: Forget them, ignore them don’t bother wasting the time on what somebody tells you what they think a property is worth. It does not matter. A property is worth what you are willing to pay. It’s that simple. Value is determined by what any specific buyer is willing to pay at that specific moment in time.
If a property was worth asking price, it would be sold to someone willing to pay that price. A prudent investor understands regression analysis and its rendering of a real estate agent’s comparables as being absolutely worthless.
Speaking of price regression, some Realtors not having a clue, and the need to make sure you are buying right, check out this video from Fox News: (click play button to begin)
3. Be prepared for a fight: The best way to avoid a fight is to be prepared not to get into one. I can hear it now..”it’s a low ball offer”…”the bank / homeowner will never accept this offer”…”I am insulted by this offer”…if you hear these statements be prepared to walk away. You are dealing with a Realtor who is an idiot.
Don’t waste your time. If you’re looking to buy an REO send your offer direct to the Asset Manager for the lender. The biggest impediment in purchasing investment property is the ignorant Realtor who has absolutely no idea what they are doing.
Can you imagine for a moment what would have transpired if Jamie Dimon had to present his offer to a Realtor? JP Morgan Chase bought Bear Stearns for pennies on the dollar and the most economically brilliant minds in the world were involved in that transaction…and you have to listen to a Realtor who went to school for a week and has no idea about the evaluation of realistic investment criteria in today’s market. That’s a conversation not worth having.
There are some very good Realtors out there who have the knowledge and experience to work with the investment community but they are hard to find. When you find one, they are worth their weight in gold. In the interim, walk if you don’t get your terms and get your offer to the Asset Manager.
4. Make your offer on your terms and your terms only: Here’s a freebie. This is how we structure an offer:
Gross Annual Market Rent
less taxes
less insurance
less maintenance (HOA, lawn, pool, any utilities..etc)
divided by ROI or Cap Rate Expected
Equals Gross Purchase Price
less estimated repairs needed (if any)
Equals Maximum Net Offer
For example we determine through our evaluation of verifiable market conditions that a subject property has an annual rental potential of $12,000.00 …indicating that the property can be immediately rented for $1,000.00 per month.
For our purposes let’s assume we have confirmed that the taxes on the property are $1,500.00 per year and that the insurance premium is $1,000 per year. Tenants pay the water and all utilities on this house and there are no HOA fees. We would pay the monthly pool service and lawn service and those two expenses run about $150.00 per month or $1,800.00 per year. So here’s the numbers on our deal:
| Gross Annual Market Rent | $12,000.00 |
| less taxes | ($1,500.00) |
| less insurance | ($1,000.00) |
| less maintenance (HOA, lawn, pool, any utilities..etc) | ($1,800.00) |
|
Sub Total |
$7,700.00 |
| divided by ROI or Cap Rate Expected | 12% |
| Gross Purchase Price | $64,000.00 |
| less estimated repairs needed (if any) | ($5,000.00) |
|
Equals Maximum Net Offer: |
$59,000.00 |
That is our offer for that property based upon current market conditions. Notice that neither the asking price nor any agent supplied comparables had any bearing upon what our offer will be to purchase this property.
Will we get all of our offers approved? We can’t even be sure that most of our offers will even be presented. But that’s not the point. It does not matter. What matters is that the deals that do get presented and do get approved are winners and are money makes from day 1 irrespective of what is going on in the market.
A deal of this nature cash flows and pays for itself with no out of pocket investment. Our tenants pay our mortgages even if we have to go the hard money route.
The best part of this is we, and you, will ALWAYS be able to obtain 100% financing for a deal with numbers like this.
We’re putting out 50 offers next week. I will be happy with getting one accepted. Most will be rejected, many won’t even be presented, but I am going to make a great deal of money on the one that does get accepted.
If Jamie Dimon can do it, so can I…and so can you!
[…] Original post by Barry Cunningham […]
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It is because of comments like “a Realtor who went to school for a week” and “a Realtor who is an idiot”, that good Realtors don’t stay in the business, and good people are left with idiot writers like you who exaggerate the facts, lead them down a path of high hopes, minimal knowledge, bad decisions, and loosing money, just to sell copy.
More than one economist has said it is the press that has created the “panic” in our real estate markets and our economy by exaggerated, misleading, sensationalistic “reporting”, leaving out the “uninteresting” facts.
STICK WITH THE FACTS!! AND PRACTICE BALANCED REPORTING!!!
Hello Bret..little agitated this morning are we?
If a “good Realtor” is leaving the business it would hardly be because of something any writer would say.
Exaggerated facts? Where in this article is there an exaggerated fact? “High hopes and loosing (sic) money”… this article is about buying correctly and being ultra-conservative so as NOT to get in over one’s head.
If you care to engage and debate facts, why not state some. And if by some chance you are talking about Lawrence Yun…please
“just the facts, M’aam” is not just a line from the old TV show Dragnet. You are correct in looking at NOI and a cap rate when making an offer. It doesn’t matter about the neighborhood or the agent. Perhaps you should find a Realtor that went to school for longer than a week. There are still some in the business that are working with investors. (And taking advantage of the current market for themselves) You might want to find an agent that is an investor.
[…] Yun, as the NAR’s Jimmy the Greek, is here for our amusement. Let’s just get used to it. Another thing, no one has a crystal ball as to when the housing market is turning around…well maybe with the exception of Jamie Dimon and he’s not telling us his secrets. (By the way..did Dimon just pull off the best “Make Money with Nothing Down Deal” in hist… […]
[…] Yun, as the NAR’s Jimmy the Greek, is here for our amusement. Let’s just get used to it. Another thing, no one has a crystal ball as to when the housing market is turning around…well maybe with the exception of Jamie Dimon and he’s not telling us his secrets. (By the way..did Dimon just pull off the best “Make Money with Nothing Down Deal” in hist… […]
[…] Yun, as the NAR’s Jimmy the Greek, is here for our amusement. Let’s just get used to it. Another thing, no one has a crystal ball as to when the housing market is turning around…well maybe with the exception of Jamie Dimon and he’s not telling us his secrets. (By the way..did Dimon just pull off the best “Make Money with Nothing Down Deal” in hist… […]
I have to agree that most agents are not that great or smart AND I’m an agent, trainer and owner of a real estate company. I disagree that good agents leave the business because of comments about the profession, that’s weak. They have no business being in this business if they are that sensitive.
When you are a very effective agent and you’re surrounded by uncreative, reactive, dumb, uneducated people it can start to wear on you. Better to focus on continuing to learn as much as possible and as a result charge more because you can prove that you net buyers and sellers more!
That’s the name of the game. I’m happy for this market, it’s when agents like myself shine while the dead wood goes away! Now that’s exciting.
[…] and Exchange Commissionhttp://biz.yahoo.com/ap/080411/bear_stearns_jpmorgan_stake.html?.v=1Jamie Dimon Is My Hero???Buying a house is not the same as buying a house on fire???JPMorgan Chase CEO Jamie Dimon […]
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[…] and lost. It should have been the “Great Time To Buy At A Price People Are Willing To Pay - No Such Thing As A Low Ball Offer - No Offer Refused Campaign”, maybe that campaign would have had some […]